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In a startling legal verdict that could send chills through the American Internet service provider industry, a California jury has awarded Louis Vuitton, the signature division of worldwide luxury titan LVMH, $32.4 million in damages in a key test of ISP liability in Web counterfeiting.

A federal district court jury found California-based ISP Akanoc Solutions, and an individual named Steven Chen, liable for "contributory trademark and copyright infringement." The defendants' ISP hosted websites peddling LV knockoffs. Louis Vuitton argued that Akanoc should have known that the infringing sites were selling fake LV merchandise.
The ruling sends a clear -- and mildly terrifying -- message to internet service providers across America: you could be liable for counterfeit or otherwise infringing material sold by websites hosted on your servers -- even if you try, but fail, to stop the activity.

"This verdict clearly establishes a standard for infringement complaints on the Internet based on trademark," Andy Coombs, Louis Vuitton's counsel, said in a statement. "It represents a positive contribution to existing case law and marks the first time statutory damages have been awarded against those found contributorily liable for trademark infringement."

The jury's verdict, which awarded Louis Vuitton a cool $32.4 million, could well be appealed. Meantime, Louis Vuitton said it expects the court to issue a permanent injunction barring the Akanoc defendants from hosting websites "that sell counterfeit or infringing Louis Vuitton goods."

Eric Goldman, Director of the High Tech Law Institute at Santa Clara University School of Law told DailyFinance that the verdict could "could send an important and chilling message to the web hosting community -- if they believe that their practices are similar to Akanoc's."

"Jury verdicts rarely send a clear message to the industry because there could be multiple issues the jury considered," Goldman said. "Even so, I anticipate that web hosts will be on heightened alert in response to any trademark complaints, which may cause many legitimate website operators to face unexpected and possibly undeserved scrutiny from their web hosts in response to trademark owner demands."

Goldman said the case could be important enough to "prompt Congress to revisit secondary liability for trademark infringement."

Louis Vuitton's $32.4 million victory comes nearly a year after the company won a $63 million judgment against eBay, which was found to be liable for fakes sold on its sprawling online flea market. EBay argued, and continues to maintain, that it works hard to monitor the sale of counterfeit goods on its site and remove them.

Louis Vuitton announced the verdict in a victory statement issued Monday. "We are very pleased that the jury recognized the Akanoc Defendants' contributory liability," said Nathalie Moullé-Berteaux, Intellectual Property Director of Louis Vuitton. "This decision is another important step towards reducing the illegal activity of websites selling counterfeit merchandise and enforcing the rule of law on the Internet."

Moullé-Berteaux went on to issue a blunt warning to Internet service providers.

"The size of this award should make it clear to all Internet Service Providers that they cannot act, or fail to act, with impunity when a trademark owner provides notice that websites hosted by the ISP are selling counterfeit goods," Moullé-Berteaux said. "We believe the size of the damages awarded should serve as a deterrent to other ISPs who may consider ignoring counterfeit trade on the websites they host."